Middle East growth to pick up pace but outlook remains shrouded in uncertainty, World Bank says

Latest forecast downgrades earlier projections of Gulf growth

Dubai's Gold Souq. The World Bank says the UAE economy will grow by 4.6 per cent this year and 4.9 per cent next year, supported by strong non-oil sector expansion. Chris Whiteoak / The National

Economic growth in the Middle East and North Africa region is expected to pick up pace this year, but the outlook remains uncertain amid prospects of a trade war, a slowdown in the global economy and volatility in crude prices, the World Bank has said.

The projected acceleration in the economic momentum follows a tepid performance over the past year, when the regional economy grew by just 1.9 per cent, dragged down by the raging conflict in Gaza and Lebanon.

This year, aggregate gross domestic product of the wider region is estimated to expand 2.6 per cent and further pick up pace to 3.7 per cent in 2026, the Washington-based multilateral lender said in its Mena Economic Update on Wednesday.

The World Bank’s latest forecast for 2025 growth is 1.3 per cent lower than it had projected in its October Mena economic update. The estimate for next year GDP expansion is also 0.4 percentage points lower than the previous forecast.

“As is the case globally, [it] is shrouded in great uncertainty”, the World Bank said.

“International trade policies and resulting trade volumes, a potential slowdown in global growth, and volatility in oil prices present significant downside risks to the near-term macroeconomic outlook for Mena economies.”

The World Bank forecast for the Mena region comes on the heels of the International Monetary Fund’s warnings of a slowdown in global economy. The fund sharply lowered its near-term outlook for the world economy, citing a radical change in trade policies led by US President Donald Trump's tariff regime.

The uncertainty caused by recent trade tension has led the IMF to ditch its typical baseline forecast and instead present a “reference forecast”. That includes Mr Trump's sweeping universal tariff plan and all tariff announcements until April 4.

As per the latest forecast, the IMF projects global growth to slow down from 3.3 per cent last year to 2.8 per cent this year – half a percentage point lower than its January forecast. Growth is expected to recover to 3 per cent next year, although it still represents a downwards revision from the fund's previous estimate.

“We are entering a new era as the global economic system that has operated for the last 80 years is being reset,” IMF chief economist Pierre-Olivier Gourinchas told reporters before the fund's updated report on Tuesday.

The fund expects the growth in the Middle East and Central Asia at 3 per cent this year and 3.5 per cent in 2026.

The World Bank expects both oil importers as well as oil exporters in Mena region to record moderate economic growth, however, their economic fortunes will remain tied to the “environment of elevated global policy uncertainty”.

Growth despite slumping oil prices

The six-member economic bloc of GCC, which accounts for about a third of the world’s proven oil reserves, is forecast to grow by 3.2 per cent this year, after its aggregate GDP recovered from near stagnation in 2023 to 1.9 per cent growth last year. The latest forecast for the economic bloc, however, is a 0.9 percentage points downward revision from the October estimate.

The World Bank expects the Gulf economies, which include some of the world’s top oil exporting nations including Saudi Arabia and the UAE, to climb by 4.5 per cent in 2026, almost on par with the lender’s previous projections.

Despite downward pressures on oil prices, economic activity in Algeria, Iraq, Kuwait and Oman, and the UAE will probably benefit from gradual increase in oil production planned by the Opec+ between April 2025 and September 2026.

After several delays in the rollback of production cuts since they were first announced, Opec has said it would accelerate the production cap rollback.

Mr Trump’s push to slap heavy tariffs on US trade partners and the consequent risk of an all-out global trade war has also added to volatility in oil prices.

However, the World Bank said that “country-specific developments shape the distinct growth trajectories of oil exporting countries”.

It expects Saudi Arabia’s GDP to grow by 2.8 per cent in 2025 and 4.5 per cent in 2026, a 2.2 per cent and 0.3 percentage point mark down, respectively, on the forecast from October estimates.

The UAE, the Arab world’s second-largest economy, is expected to grow by 4.6 per cent this year and 4.9 per cent next — a 0.5 percentage point and 0.9 percentage point upward revision.

“Diversification efforts will continue to expand non-oil sectors, especially in the case of Oman, Qatar, Saudi Arabia and the UAE,” the World Bank said.

Growth for oil importers

Oil importing economies of the broader region are set to grow by 3.4 per cent in 2025 and pick up momentum further to 3.7 per cent growth next year, almost on par with the previous forecast, the World Bank said.

In Egypt, the most populous Arab nation, GDP growth is forecast to increase to 3.8 per cent in 2025 financial year, from 2.4 per cent last year, “driven by strong private consumption as inflation eases”. “A rebound in the agricultural sector in 2025 is expected to sustain growth at 3.4 per cent and 1.9 per cent in Morocco and Tunisia, respectively”, contingent on improving rainfall.

“Subdued global demand and volatility in oil markets would present a significant downside risk for the economic growth of oil exporters, even with increased production. Decreased oil export revenue would add pressure on their fiscal and external accounts,” the World Bank said.

“Conversely, for oil importers, lower oil prices could partially cushion other potential negative impacts on their terms of trade.”

Peace and recovery remain precarious

Conflict continues to undermine the growth prospects and remains as a downside risk to economic progress across Mena.

Economic losses from the recent conflict centred in Gaza are staggering. Last year, real GDP in the Palestinian territories fell by 27 per cent on average – 83 per cent in Gaza and 17 per cent in the West Bank. Gaza’s economic role in the overall Palestinian economy has also been severely curtailed, shrinking its share from 17 per cent before the conflict to 3.3 per cent by the end of 2024, according to World Bank data.

“No war-torn country in the region has fully recovered from the economic devastation of recent decades,” the lender said.

“As of December 2024, nearly all of Gaza is in poverty. The poverty rate in the West Bank is 28.5 per cent.”

In Lebanon, which is also facing continued Israeli assaults, the election of a reform-orientated government this year has ended more than two years of political paralysis, however, the damage to the Lebanese economy is vast.

“By the end of 2024, Lebanon’s cumulative GDP decline since 2019 approached 40 per cent, following five years of crises in the country,” the World Bank said.